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What Are the Top 3 Things People Get Wrong About Self-Custody?
How you store your crypto assets matters, and if you’re not doing it correctly, you could be leaving your investments vulnerable. Self custody of cryptocurrencies and other digital assets simply refers to the process of managing your crypto assets yourself, and it’s the only way to ensure complete control. But unfortunately, many people don’t have a complete understanding of self-custody crypto wallets.
While nearly everyone in crypto is familiar with the importance of using a secure crypto wallet for storing Bitcoin or other digital coins or tokens, few understand the implications of self-custody crypto wallets. Self-custody crypto wallets allow you to own your private keys, granting you full control of your crypto assets.
But there’s still a lot of confusion about self-custody wallets. Most crypto-natives either take it too casually and leave their coin on a centralized exchange, or they go down the rabbit hole with over-complicated methods that make it hard to trade cryptocurrencies.
Here are some of the most common misconceptions about self-custody crypto wallets:
Misconception #1: Self-Custody Wallets Are Always Complicated
False! Most self-custody crypto wallets have simple, user-friendly interfaces that make it easy to store your coin securely in a matter of minutes. To get started with a self-custody wallet, all you need to do is download the wallet from a trusted source, secure your private keys and back up your data. Next, you will receive a prompt to save your private keys in a mnemonic phrase, paper wallet, or hardware wallet. This approach allows you to have a backup of your keys and wallet so that you can restore it at any time.
There is a learning curve but it’s not a great deal more complicated then setting two-factor authentication or a new bank account.
Most people new to crypto also believe that only experienced crypto users should use self-custody wallets. The truth, however, is that a self-custody wallet is one of the easiest and most secure ways to store your crypto assets, especially if you are new to crypto.
Plenty of online resources make it easy for new crypto investors to get up to speed on how self-custody works. There are also plenty of tutorials available that will teach you the basics of setting up and using a self-custody wallet to store your digital assets securely.
Novice crypto users can protect their assets from hacks on exchanges and rug pulls in DeFi projects with self-custody crypto wallets.
Misconception #2: Self-Custody Wallets Are Only for Long-Term Storage
While it’s true that self-custody does provide security for long-term investments, it also allows you to use your cryptocurrency without ever needing to transfer your coins to a third-party platform such as an exchange.
You can use a hardware wallet to connect to web wallets and peer-to-peer networks, which allows you to execute transactions from the comfort of your own wallet. So you don’t need to memorize all the security details of an exchange and expose your digital assets to additional risk – you can do it all from within your self-custody wallet.
You can even go as far as trading on a decentralized exchange with a self-custody wallet. With some platforms, like the Unstoppable Wallet, you can connect your wallet to different exchanges and blockchains, allowing you to quickly buy or sell crypto assets without needing a third party. You can even trade cryptocurrencies directly with other users on decentralized exchanges that are connected to your self-custody wallet.
Misconception #3: Self-Custody Wallets are Only for Bitcoin, Hardware Wallets
Nope! Self-custody wallets are designed to support a variety of coins and tokens so that you can store any digital asset in a self-custody wallet. This includes popular coins like Ethereum, Litecoin, and Cardano, as well as smaller altcoins that centralized exchanges might not support.
If done correctly, your coins will never be at risk of being hacked or stolen as long as you follow basic security protocols, such as keeping your private keys safe and backing up your data. Of course, it’s always important to do your research and make sure that you are using a reputable wallet provider before storing any of your digital assets.
Moreover, you don’t necessarily need a hardware wallet to store your digital assets safely. Most popular self-custody crypto wallets allow you to store large sums of cryptocurrencies in their own proprietary software wallets. The software wallet will then store the data in your wallet on your device (either smartphone or laptop).
However, it’s important to note that hardware wallets are the most secure way of self-custody, as they enable you to keep your private keys offline and away from malicious actors. You also get a single device you can control instead of multiple devices carrying your private keys.
Some of the most popular wallets that offer self custody are the following:
Conclusion: Not Your Keys, Not Your Crypto
The recent FTX exchange meltdown has reminded us of the importance of self-custody crypto when keeping our digital assets secure.
Self-custody wallets offer a variety of benefits, including enhanced security, control over your private keys, and access to a range of coins and tokens that may not be available on centralized exchanges.
When the centralized exchange keeps your private keys, they maintain ownership of your coins and can use your coins however they want to. In the case of FTX, it is now revealed that the company used the depositor’s funds to cover their own losses and trade for profit without the depositors’ knowledge.
By using a self-custody wallet, crypto users can take complete control of their funds and manage their digital assets with confidence.
There will likely always be a need for centralized crypto entities (for on-ramps and trading) but the vast majority of your crypto should be stored on a self custody wallet.
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